LENDINGCLUB CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Consolidated Operations

(Edgar Glimpses Via Acquire Media NewsEdge) In addition to historical information, this quarterly 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 Consolidated 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 maintain and improve technology infrastructure; continued significant operating losses and cash flow deficits, and adverse financial, customer and employee consequences that might result to us if litigation were to be initiated and resolved in an adverse manner to us. For a more detailed discussion of the risks relating to our business, readers should refer to Part II Item 1A found later in this report entitled "Risk Factors," as well as the "Risk Factors" section of the prospectus for the Notes dated July 31, 2012, and filed with the SEC, as may be amended or supplemented from time to time. 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 quarterly report. We assume no obligation to update these forward-looking statements.

Overview We are an online financial platform that enables qualified borrower members to obtain unsecured consumer loans (which we refer to as "Member Loans"). We were incorporated in Delaware in October 2006, and in May 2007, began operations as an application on Facebook.com. We expanded our operations in August 2007 with the launch of our public website, www.lendingclub.com. Investors have the opportunity to purchase Member Payment Dependent Notes (which we refer to as the "Notes") issued by us, with each series of Notes corresponding to an individual Member Loan facilitated through our platform. The Notes are unsecured, are dependent for payment on the related Member Loan and offer interest rates and credit characteristics that we believe the investors find attractive.

The Company established a wholly-owned subsidiary, LCA, a registered investment adviser, in October 2010 for the purpose of expanding the pool of investor capital to invest in Notes and similar obligations. The Company established the Trust, a Delaware business trust in February 2011 to acquire and hold Member Loans for the sole benefit of investors that purchase Trust Certificates (Certificates) issued by the Trust and which are related to the underlying Member Loans. The Certificates may only be settled with cash flows from the related Member Loans held by the Trust consistent with the member payment dependent design of the Certificates; Certificate holders do not have recourse to the general credit or other assets of the Trust, Company or other investors.

In February and March 2011 respectively, LCA became the general partner in two investment funds offered through private placements that were formed to enable accredited investors to invest in Certificates. In May 2012, one of the investment funds reorganized into two separate funds to facilitate the continued addition of qualifying and accredited investors. As of September 30, 2012, the investment funds had approximately $211 million in total assets, of which approximately $203 million consisted of investments in Certificates and the remainder in uninvested cash. LCA earns a management fee paid by the limited partners of the funds, which is based on the month-end capital account balances of the limited partner investors in each fund.

The vast majority of Member Loans facilitated since October 13, 2008, have been financed by Notes and Certificates. We have also financed portions of certain Member Loans ourselves using sources of funds other than Notes and Certificates.

We receive the same terms on Member Loans that we finance as the terms received by other Note and Certificate investors.

All Member Loans are unsecured obligations of individual borrower members with fixed interest rates, three-year or five-year maturities, minimum amounts of $1,000 and maximum amounts up to $35,000. The Member Loans are posted on our website, pursuant to an agreement with WebBank, an FDIC-insured, state-chartered industrial bank organized under the laws of the state of Utah, are funded and issued by WebBank and sold to us immediately after closing. As a part of operating our lending platform, we verify the identity of members, obtain borrower members' credit characteristics from consumer reporting agencies such as TransUnion, Experian or Equifax and screen borrower members for eligibility to participate in the platform and facilitate the posting of Member Loans. Also, after acquiring the Member Loans from WebBank, we service the Member Loans on an ongoing basis.

As of September 30, 2012, the platform had facilitated 77,191 Member Loans totaling approximately $914 million since our launch in May 2007. Our agreement with WebBank has enabled us to make our platform available to borrower members on a uniform basis nationwide, except that as of September 30, 2012, we do not currently offer Member Loans in Idaho, Indiana, Iowa, Maine, Mississippi, Nebraska, North Dakota and Tennessee. We pay WebBank a monthly service fee based on the amount of loan proceeds disbursed by WebBank in each month, subject to a minimum monthly fee.

29 -------------------------------------------------------------------------------- Table of Contents We have incurred net losses since our inception. Our net losses were $881,587 and $3,346,357 for the three months ended September 30, 2012 and 2011, respectively, and $3,407,395 and $6,453,035 for the six months ended September 30, 2012 and 2011, respectively. We earn revenues from fees, primarily loan origination fees charged to borrower members, investor servicing fees and, beginning in 2011, management fees charged to certain investors that purchase Certificates. Over time, we expect that the number of borrower and investor members and the volume of Member Loans facilitated through our platform will increase, and that we will generate increased revenue from borrower origination fees, investor service fees and management fees.

To date, we have funded our cash flow deficits from operations primarily with proceeds from our preferred stock issuances and funds drawn from our credit facilities, which are described under "Liquidity and Capital Resources." From inception of the Company through September 30, 2012, we have raised approximately $102.5 million (net) through preferred equity financings. In June 2012 we issued and sold via private placement a total of 2,500,000 shares of Series E convertible preferred stock at $7.00 per share for aggregate cash consideration of $17,500,000, less total transaction expenses of $153,733 that were recorded as a reduction to gross proceeds. The remaining balances due under the loans payable and credit facilities were paid in full in July 2012.

For the quarter ended September 30, 2012, we were cash-flow positive. We expect to continue to operate on a cash-flow positive basis through the end of calendar year 2013 and we believe that we will continue operating at or near breakeven between now and the end of our current fiscal year. If our assumptions regarding continued growth and operating plan are incorrect, we may need to slow our investment spending, which could slow our rate of growth or ability to continue operating on a cash-flow positive basis, and our current liquidity resources may be consumed. To date we have funded our cash requirements with proceeds from the sale of our equity securities.

We aim to operate an efficient platform so we may offer interest rates to borrower members that are lower than the rates they could obtain for unsecured credit through credit cards or traditional banks, and offer interest rates to investors that they find attractive. Our platform operates online only. Our registration, processing and payment systems are automated and electronic. We encourage the use of electronic payments as the preferred means to disburse member loan proceeds, receive payments on outstanding Member Loans, receive funds from investor members, and to disburse payments to applicable investors.

We have no physical branches for loan application or deposit-taking activities.

Our member service center is located in our corporate headquarters in San Francisco, California.

Significant Accounting Policies and Estimates The preparation of our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make certain judgments, assumptions, and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We believe that the judgments, assumptions and estimates upon which we rely are reasonable based upon information available to us at the time that these judgments, assumptions and estimates are made. However, any differences between these judgments, assumptions and estimates and actual results could have a material impact on our consolidated statement of operations and financial condition. The accounting policies, which are more fully described in Note 2 to our consolidated financial statements, reflect our most significant judgments, assumptions and estimates and which we believe are critical in understanding and evaluating our reported financial results include: (1) revenue recognition; (2) fair value determinations; (3) allowance for loan losses; (4) share-based compensation; and (5) provision for income taxes, net of valuation allowances for deferred tax assets. These estimates and assumptions are inherently subjective in nature, actual results may differ from these estimates and assumptions, and the differences could be material.

Member Loans at Fair Value We have elected fair value accounting for the vast majority of Member Loans facilitated through the platform since October 13, 2008, including all Member Loans originated since October 1, 2011, and all related Notes and Certificates.

The fair value election for these Member Loans, Notes and Certificates allows symmetrical accounting for the timing and amounts recognized for both expected unrealized losses and realized losses on the Member Loans and the related Notes and Certificates, consistent with the member payment dependent design of the Notes and Certificates. All of our Member Loans are unsecured but the gross potential credit risk to the Company from Member Loans is significantly mitigated to the extent that loans are financed by Notes or Certificates that absorb the loans' credit losses pursuant to the member payment dependency provision.

Absent the fair value elections for both Member Loans at fair value and the related Notes and Certificates, Member Loans held for investment would be accounted for at amortized cost and would record loan loss provisions for estimated expected losses, but the related Notes and Certificates also accounted for at amortized cost would recognize the losses passed-through by the related loans only when and in amounts of the loans actually charged-off, thereby resulting in a mismatch in the timing and amounts of loss recognition between a Member Loan and related Notes and Certificates, which is not an appropriate representation for instruments that are designed to have linked cash flows and loss realization. The loan origination fees for Member Loans at fair value are recognized as a component of non-interest revenue at the time of the loan origination. The costs to originate Member Loans at fair value are recognized in operating expenses as incurred. Interest income on Member Loans at fair value is recorded as earned. The remaining Member Loan originations have been accounted for at amortized cost as explained more fully below.

30-------------------------------------------------------------------------------- Table of Contents When we receive payments of principal and interest on Member Loans at fair value, we remit principal and interest payments on related Notes and/or Certificates, net of any applicable servicing fee on the payments received on the Member Loans at fair value. The principal payments reduce the carrying values of both the Member Loans at fair value and the related Notes and Certificates. Servicing fees withheld from payments made to Note investors are recorded as a component of non-interest revenue when received. Management fees from Certificate investors are recognized as a component of non-interest revenue when earned.

We include in earnings the estimated unrealized fair value gains or losses during the period of Member Loans at fair value, and the offsetting estimated fair value losses or gains attributable to the expected changes in future payments on related Notes and Certificates.

At September 30, 2012, we estimated the fair values of Member Loans at fair value and their related Notes and Certificates using a discounted cash flow valuation methodology. The estimated fair values of Member Loans are computed by projecting the future contractual cash flows to be received on the loans, adjusting those cash flows for our expectations of prepayments (if significant), defaults and losses over the life of the loans, and expected net recoveries, if any. We then discount those projected net cash flows to a present value, which is the estimated fair value. Our expectation of future defaults and losses on loans is based on analyses of actual defaults and losses that occurred on the various credit grades of Member Loans over the past several years. Expected net recoveries reflect actual historical recovery experience for the various types of defaulted loans and the contractual arrangements with collection agencies.

The discount rates for the projected net cash flows of the Member 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 Member Loans.

Our obligation to pay principal and interest on any Note and Certificate is equal to the pro-rata portion of the payments, if any, received on the related Member Loan at fair value, net of any applicable servicing fee. The gross effective interest rate associated with a Note or a Certificate is the same as the interest rate earned on the related Member Loan at fair value. At September 30, 2012, the discounted cash flow methodology used to estimate the Notes' and Certificates' fair values uses the same projected net cash flows as their related Member Loans. The discount rates for the projected net cash flows of the Notes and Certificates are our estimates of the rates of return, including any applicable risk premiums, if significant, that investors in unsecured consumer credit obligations would require when investing in Notes issued by LendingClub or Certificates issued by the Trust, with cash flows dependent on specific credit grades of Member Loans.

For additional discussion on this topic, including the adjustments to the estimated fair values of Loans at fair value and Notes at fair value, as discussed below, see Results of Operations and Note 5 - Member Loans at Fair Value and Notes and Certificates at Fair Value.

Member Loans at Amortized Cost The loan origination fees for Member Loans at amortized cost are deferred at origination and, with the related deferred loan origination costs, are amortized to interest income over the contractual lives of the loans using a method that approximates the effective interest method, which loans currently have original terms of 36 or 60 months. We record interest income on Member Loans at amortized cost as earned. Loans reaching 120 days delinquent are classified as nonaccrual loans, and we stop accruing interest and reverse all accrued but unpaid interest after such date.

We may incur losses if the borrower members fail to pay their monthly scheduled loan payments. Impaired Member Loans at amortized cost include loans at amortized cost that are 90 days or more past due and loans where the borrower has filed a petition in bankruptcy or is deceased.

As part of our activities to maximize receipt, collection and recovery of loans in which the borrower has, or is expected to, experience difficulty in meeting the loan's contractually required payments, we may agree to special payment plans with certain borrowers. Most of the special payment plans involve reduced minimum loan payments for a short period of time and the deferred payments are to be repaid over the remaining original term of the loan. No principal or interest is forgiven nor is the original term of the loan extended in these situations. The delay in receipt of all contractually-required loan payments in these situations is insignificant.

Prior to December 2011, special payment plans with certain borrowers involved extensions of the original term of the loan by six to 24 months, but in no case extending the total term beyond 60 months, and recasting the borrower's monthly loan payment schedule. In these situations, the restructuring of the loan terms qualifies as a Troubled Debt Restructuring ("TDR"). We classify TDR's outstanding as of September 30, 2012 as impaired loans at amortized cost.

31-------------------------------------------------------------------------------- Table of Contents An allowance for loan losses applies only to Member Loans at amortized cost and is a valuation allowance that is established as losses are estimated to have occurred at the balance sheet date through a provision for loan losses charged to earnings. Realized loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.

The allowance for loan losses is evaluated on a periodic basis by management, and represents an estimate of potential credit losses based on a variety of factors, including the composition and quality of the Member Loans at amortized cost, loan specific information gathered through our collection efforts, delinquency levels, probable expected losses, current and historical charge-off and loss experience, current industry charge-off and loss experience, and general economic conditions. Determining the adequacy of the allowance for loan losses for Member Loans at amortized cost is subjective, complex and requires judgment by management about the effects of matters that are inherently uncertain, and actual losses may differ from our estimates.

Our estimate of the allowance for loan losses for Member Loans at amortized cost is developed by estimating both the rate of default of the loans within each credit score band using the FICO credit scoring model, a loan's collection status, the borrower's FICO score at or near the evaluation date, and the amount of probable loss in the event of a borrower member default.

We have elected fair value accounting for all Member Loans facilitated through the platform on and after October 1, 2011, and we elected fair value accounting for the majority of Member Loans facilitated through the platform prior to October 1, 2011. We expect the remaining balance of Member Loans at amortized cost to decline to zero over the next several years.

Results of Operations Revenues Our business model consists primarily of charging fees to both borrower members and investor members for transactions through or related to our platform. During the three months ended September 30, 2012 and 2011, we facilitated $215,378,036 and $68,528,875 of loans, respectively, on our lending platform, an increase of 214%. During the six months ended September 30, 2012 and 2011, we facilitated $352,744,227 and $124,592,575 of loans, respectively, on our lending platform, an increase of 183%.

Upon issuance of a loan, WebBank pays a fee to us for providing the services of arranging the Member Loan. The loan origination fee charged to each borrower member is determined by the credit grade of that borrower member's loan and as of September 30, 2012, ranged from 1.11% to 5.00% of the aggregate member loan amount. The loan origination fees are included in the annual percentage rate ("APR") calculation provided to the borrower member and is subtracted from the gross loan proceeds prior to disbursement of the loan funds to the borrower member.

Investor members that purchase Notes pay servicing fees to us on the payments for the related Member Loans and maintaining account portfolios. Beginning in March 2011, we began charging limited partners in private investment funds (Funds) monthly management fees that are based on the month-end balances of their partners' capital accounts. These management fees, which are charged in lieu of servicing fees on the Certificates purchased by the Funds, are recorded in other revenue.

To a lesser extent, we also generate revenue from the net interest income earned on Member Loans that we finance with sources of funds other than Notes and Certificates.

Loan Origination Fees Our borrower members pay a one-time origination fee to us for arranging a Member Loan. This fee is determined by the term and loan grade of the Member Loan.

Beginning January 7, 2011, our origination fees for five year loans changed, and ranged from 3.00% to 5.00% of the aggregate principal amount of the Member Loan, as set forth below: Loan Grade A B C D E F G Fee 3.00 % 5.00 % 5.00 % 5.00 % 5.00 % 5.00 % 5.00 % Beginning February 2, 2012, our loan origination fees for the three year loans decreased from 5.00% to 4.00% for the Loan Grade G Member Loans as set forth below: Loan Grade A1 A2 A3-A5 B C D E F G Fee 1.11 % 2.00 % 3.00 % 4.00 % 5.00 % 5.00 % 5.00 % 5.00 % 4.00 % We do not receive an origination fee if a Member Loan request does not close.

Loan origination fees on Member Loans at fair value are recognized as a component of non-interest revenues at the time of loan origination and were $8,973,158 and $2,940,193 for the three months ended September 30, 2012 and 2011, respectively, an increase 32-------------------------------------------------------------------------------- Table of Contents of 205%. The increase in these loan fees was primarily due to an increase in origination volumes of Member Loans at fair value during the three months ended September 30, 2012, to $215.4 million versus originations of $68.5 million for the three months ended September 30, 2011, an increase of 214%. The average loan origination fees were 4.17% and 4.24% of the principal amount of Member Loans at fair value originated for the three months ended September 30, 2012 and 2011, respectively. The decrease in the average loan origination fee in the current period was primarily due to changes in the mix of Member Loans between three and five year loans and also between the various credit loans from the prior year.

Loan origination fees on Member Loans at fair value were $14,839,452 and $5,384,137 for the six months ended September 30, 2012 and 2011, respectively, an increase of 176%. The increase in these loan fees was primarily due to an increase in origination volumes of Member Loans at fair value during the six months ended September 30, 2012, to $352.7 million versus originations of $123.5 million for the six months ended September 30, 2011, an increase of 186%. The average loan origination fees were 4.21% and 4.36% of the principal amount of Member Loans at fair value originated for the six months ended September 30, 2012 and 2011, respectively. The decrease in the average loan origination fee in the current period was primarily due to changes in the mix of Member Loans between three and five year loans and also between the various credit loans from the prior year.

Loan origination fees on Member Loans at amortized cost are netted against the direct loan origination costs, deferred and the net amount is amortized to interest income over the life of the Member Loans at amortized cost. Because of the election of fair value accounting for all loan originations on and after October 1, 2011, there were no originations of Member Loans at amortized cost or related loan origination fees received during the three or six months ended September 30, 2012. There was an insignificant amount of origination fees received on the approximately $1.1 million of Member Loans at amortized cost originated during the six months ended September 30, 2011.

Servicing fees on Notes at Fair Value Beginning with the issuance of Notes at fair value on October 13, 2008, we began charging investor members an ongoing service fee for Notes purchased through our platform. The servicing fee offsets the costs we incur in servicing the related Member Loans at fair value, including managing payments from borrower members, payments to the investor members and maintaining investors' account portfolios.

This service fee is charged based on payment amounts serviced by us on behalf of a Note investor in respect of a Member Loan.

The servicing fees earned from Note holders that relate to cash flows serviced on related Member Loans at fair value were $479,351 and $281,837 for the three months ended September 30, 2012 and 2011, respectively, an increase of 70.0%.

The servicing fees earned from Note holders that relate to cash flows serviced on related Member Loans at fair value were $902,180 and $507,759 for the six months ended September 30, 2012 and 2011, respectively, an increase of 77.7%.

The increases in the servicing fees earned from Note holders were primarily due to increased balances of Notes outstanding during the three and six months ended September 30, 2012, versus the three and six months ended September 30, 2011.

The amount of servicing fees earned depends on the balances of Notes that have explicit servicing fees, versus the balances of Certificates whose holders pay management fees, and the average servicing fee paid by the Note holders.

Management Fees and Assets Under Management Beginning in March 2011, we began charging Certificate holders a management fee based on their month-end capital account balances in lieu of paying servicing fees. We earned management fees from investors in Certificates totaling $225,068 and $29,811 for the three months ended September 30, 2012 and 2011, respectively, and $372,356 and $41,457 for the six months ended September 30, 2012 and 2011, respectively. The increase in management fees earned during the three and six month periods in 2012 versus the comparable periods in the prior year is due primarily to an increase in total assets under management by LCA, which were approximately $225 million at September 30, 2012 (approximately $211 million in three investment funds and $14 million in certain Separately Managed Accounts or "SMAs") and approximately $25 million at September 30, 2011.

33-------------------------------------------------------------------------------- Table of Contents Net Interest Income The following table summarizes interest income, interest expense and net interest income for the three and six months ended September 30, 2012 and 2011, as follows: Three Months Ended September 30, Six Months Ended September 30, 2012 2011 2012 2011 Interest Income Member Loans at fair value $ 18,359,073 $ 6,277,944 $ 31,876,146 $ 11,269,335 Member Loans at amortized cost, net 117,706 155,376 146,030 343,528 Cash and cash equivalents 13,060 4,271 21,860 10,042 Total Interest Income 18,489,839 6,437,591 32,044,036 11,622,905 Interest Expense Notes and Certificates at fair value $ (18,258,078 ) $ (6,224,160 ) $ (31,695,214 ) $ (11,215,551 ) Loans payable (287 ) (69,429 ) (11,400 ) (171,817 ) Total Interest Expense (18,258,365 ) (6,293,589 ) (31,706,614 ) (11,387,368 ) Net Interest Income $ 231,474 $ 144,002 $ 337,422 $ 235,537 We had net interest income of $231,474 and $144,002 for the three months ended September 30, 2012 and 2011, respectively, and $337,422 and $235,537 for the six months ended September 30, 2012 and 2011, respectively. Net interest income increased in the three and six months ended September 30, 2012, when compared to the same periods in the prior year primarily due to the reduction in interest expense on high-cost loans payable as such loans were paid down and replaced by non-interest-bearing sources of funds. We expect that net interest income, primarily related to interest income on Member Loans at fair value and interest expense on Notes and Certificates at fair value, will continue to diminish as a percentage of overall net revenues as we grow our platform due to the payment dependent relationship of interest payments on Member Loans at fair value and interest payments on Notes and Certificates at fair value.

Interest Income on Member Loans at Fair Value We record interest income from Member Loans at fair value. For the three months ended September 30, 2012 and 2011, we recorded interest income from Member Loans at fair value, excluding loan origination fees, of $18,359,073 and $6,227,944, respectively. The increase in interest income in the three months ended September 30, 2012, compared to the prior year is primarily due to the significant increase in the outstanding balances of Member Loans at fair value.

The estimated average balance of Member Loans at fair value outstanding during the three months ended September 30, 2012, was $531.9 million as compared to an estimated average balance of $216.3 million in the prior year, an increase of 145.9%.

For the six months ended September 30, 2012 and 2011, we recorded interest income from Member Loans at fair value, excluding loan origination fees, of $31,876,146 and $11,269,335, respectively. The increase in interest income in the six months ended September 30, 2012, compared to the prior year also is primarily due to the significant increase in the outstanding balances of Member Loans at fair value. The estimated average balance of Member Loans at fair value outstanding during the six months ended September 30, 2012, was $473.6 million as compared to an estimated average balance of $196.3 million in the prior year, an increase of 141.3%.

Interest Earned on Member Loans at Amortized Cost Between April 7, 2008 and October 13, 2008, while we sought to register the offering of the Notes, we financed Member Loan originations with sources of funds other than Notes, which generate interest income on Member Loans at amortized cost. Subsequent to the effectiveness of our registration statement related to our Notes in October 2008, we periodically provided funds to originate some Member Loans at amortized cost. However, as we have increased our investor marketing efforts to increase the issuance of Notes and Certificates to finance loans, the originations and outstanding balances of Member Loans at amortized cost have stopped. As noted earlier, we have elected fair value accounting for all loans originated on and after October 1, 2011. Accordingly, for the three and six months ended September 30, 2012 and 2011, we facilitated through our platform $0 and $1,063,821 of Member Loans at amortized cost, respectively. We expect the remaining balance of Member Loans at amortized cost to decline to zero in the near future.

For the three months ended September 30, 2012 and 2011, we recorded interest income on Member Loans at amortized cost, including the amortization of deferred net loan origination fees and costs, of $117,706 and $155,376, respectively. For the six months ended September 30, 2012 and 2011, we recorded interest income on Member Loans at amortized cost, including the amortization of deferred net loan origination fees and costs, of $146,030 and $343,528, respectively. The decline in interest income on Member 34 -------------------------------------------------------------------------------- Table of Contents Loans at amortized cost is primarily due to the decline in the estimated average balance of Member Loans at amortized cost. For the three months ended September 30, 2012, the estimated average balance decreased to $0.8 million, versus $4.1 million for the three months ended September 30, 2011. For the six months ended September 30, 2012, the estimated average balance decreased to $1.3 million, versus $4.9 million for the six months ended September 30, 2011.

Interest Earned on Cash and Investments Interest income from cash and cash equivalents is recognized as it is earned.

For the three months ended September 30, 2012, we recognized $13,060 of interest income earned on cash and cash equivalents versus $4,271 of interest income recognized for the three months ended September 30, 2011. For the six months ended September 30, 2012, we recognized $21,860 of interest income earned on cash and cash equivalents versus $10,042 of interest income recognized for the six months ended September 30, 2011. The low absolute amounts of interest earned on cash and cash equivalents reflects the current environment of very low short-term interest rates and the low rates earned on highly liquid deposits with highly-rated financial institutions. The differences in interest income earned in the three and six month periods of the current and prior year are primarily a function of changes in the balances of interest-bearing cash deposits on hand. We do not expect interest income from cash and cash equivalents to be a significant part of our future revenue.

Interest Expense on Notes and Certificates We record interest expense on the Notes issued by LendingClub and, beginning in March 2011, we began recording interest expense on Certificates issued by the Trust. We recorded total interest expense for Notes and Certificates of $18,258,078 and $6,224,160, respectively, for the three months ended September 30, 2012 and 2011. The increase in interest expense in the three months ended September 30, 2012, compared to the comparable period in the prior year is primarily due to the significant increase in the outstanding balances of Notes and Certificates at fair value. The estimated average balance of Notes and Certificates at fair value outstanding during the three months ended September 30, 2012, was $532.2 million as compared to an estimated average balance of $214.6 million in the prior year, an increase of 148%.

Similarly, the increase in interest expense in the six months ended September 30, 2012, compared to the comparable period in the prior year also is primarily due to the significant increase in the outstanding balances of Notes and Certificates at fair value. The estimated average balance of Notes and Certificates at fair value outstanding during the six months ended September 30, 2012, was $474.0 million as compared to an estimated average balance of $195.2 million in the prior year, an increase of 143%.

Interest Expense on Loans Payable Interest expense, other than that described above with regard to Notes and Certificates at fair value, consists primarily of cash and non-cash interest expense on loans payable. For the three months ended September 30, 2012 and 2011, we paid cash interest of $287 and $69,429, respectively, for interest due on our loans payable and we also recorded $0 and $23,134 respectively, for non-cash interest expense related to debt discounts due to warrants related to our loans payable. For the six months ended September 30, 2012 and 2011, we paid cash interest of $6,265 and $114,700, respectively, for interest due on our loans payable and we also recorded $5,135 and $57,117 respectively, for non-cash interest expense related to debt discounts due to warrants related to our loans payable.

All remaining balances owed under the loans payable were paid in full at their maturity in July 2012.

Fair Value Adjustments on Member Loans at Fair Value and Notes and Certificates at Fair Value As discussed earlier, at September 30, 2012, we estimated the fair values of Member Loans and their related Notes and Certificates using a discounted cash flow valuation methodology. The fair valuation methodology considers projected prepayments, if significant, and uses the historical actual defaults, losses and recoveries on our loans over the past several years to project future losses and net cash flows on loans. The evolution and improvement of our credit risk management policies and practices over the past several years has resulted in improving loss (charge-off) rates on loans in recent years. Accordingly, the fair valuation methodology projects lifetime losses on loans based on the historical, improving loss rates.

Fair value adjustment gains/(losses) for Member Loans at fair value were $(7,248,115) and $(4,230,842) for the three months ended September 30, 2012 and 2011, respectively, and $(10,757,541) and $(7,053,662) for the six months ended September 30, 2012 and 2011, respectively. Fair value adjustment gains/(losses) for Notes and Certificates were $7,106,698 and $4,136,376 for the three months ended September 30, 2012 and 2011, respectively, and $10,567,253 and $6,958,939 for the six months ended September 30, 2012 and 2011, respectively.

The fair value adjustments for Member Loans at fair value were largely offset by the fair value adjustments of the Notes and Certificates at fair value due to the member payment dependent design of the Notes and Certificates, and because the principal balances of the Member Loans at fair value were very close to the combined principal balances of the Notes and Certificates. Accordingly, the net fair value adjustment gains/(losses) for Member Loans and Notes and Certificates were $(141,417) and $(94,446) for the three months ended September 30, 2012 and 2011, respectively, and $(190,288) and $(94,723) for the six months ended September 30, 2012 and 2011, respectively.

35-------------------------------------------------------------------------------- Table of Contents Provision for Loan Losses Loan loss provisions arise only for Member Loans at amortized cost. Loan loss provisions (benefits) were $7,229 and $80,240 for the three months ended September 30, 2012 and 2011, respectively and $(41,293) and $155,144 for the six months ended September 30, 2012 and 2011, respectively. The declines in total loan loss provisions for Member Loans at amortized cost in the three and six month periods ended September 30, 2012, compared to the loss provisions in the three and six month periods ended September 30, 2011, was primarily due to lower principal balances of loans outstanding in the current periods versus the comparable periods in the preceding year.

The allowance for loan losses, which management evaluates on a periodic basis, represents an estimate of expected credit losses inherent in the portfolio of Member Loans at amortized cost that we hold for investment and is based on a variety of factors, including the composition and quality of the loan portfolio, loan specific information gathered through our collection efforts, delinquency levels, our historical charge-off and loss experience, current industry charge-off and loss experience, and general economic conditions. Determining the adequacy of the allowance for loan losses is subjective, complex, and requires judgment by management about the effect of matters that are inherently uncertain (see Note 2 - Summary Significant Accounting Policies - Allowance for Loan Losses).

As discussed above, expected losses on Member Loans at fair value are recognized through their fair value adjustments and are offset to the extent that the loans are financed by Notes and/or Certificates that absorb the related expected loan losses.

Operating Expenses: The following tables summarize our operating expenses for the three and six month periods ended September 30, 2012 and 2011.

Three Months Ended September 30, 2012 2011 $ Change % Change Sales, Marketing & Customer Service $ 6,672,230 $ 4,289,476 $ 2,382,754 56 % Engineering 1,381,973 666,736 715,237 107 % General & Administrative 2,725,140 1,794,108 931,032 52 % Total Operating Expenses $ 10,779,343 $ 6,750,320 $ 4,029,023 60 % Six Months Ended September 30, 2012 2011 $ Change % Change Sales, Marketing & Customer Service $ 12,356,752 $ 8,147,315 $ 4,209,437 52 % Engineering 2,374,334 1,186,875 1,187,459 100 % General & Administrative 5,236,843 3,308,334 1,928,509 58 % Total Operating Expenses $ 19,967,929 $ 12,642,524 $ 7,325,405 58 % Sales, Marketing and Customer Service Expense Sales, marketing and customer service expense consists primarily of salaries, benefits and stock-based compensation expense related to sales, marketing, customer service, credit and collections personnel, costs of marketing campaigns and costs of borrower acquisitions such as credit scoring and screening. Sales, marketing and customer service expenses for the three months ended September 30, 2012 and 2011, were $6,672,230 and $4,289,476, respectively, an increase of approximately 56%. The increase in spending during the three month period ended September 30, 2012 compared to the same period of the prior year were primarily due to a $1,248,983 increase in personnel related expenses and a $706,870 increase in spending on new and ongoing marketing programs to attract borrowers and increase investment activity on the platform.

Sales, marketing and customer service expenses for the six months ended September 30, 2012 and 2011, were $12,356,752 and $8,147,315, respectively, an increase of approximately 52%. The increase in spending during the six month period ended September 30, 2012 relative to the same period of the prior year was primarily due to a $2,129,306 increase in personnel related expenses and a $1,142,186 increase in spending on new and ongoing marketing programs to attract borrowers and increase investment activity on the platform.

36-------------------------------------------------------------------------------- Table of Contents Engineering Expense Engineering expense consists primarily of salaries, benefits and stock-based compensation expense of engineering personnel, and the cost of subcontractors who work on the development and maintenance of our platform and software enhancements that run our platform. Engineering expenses for the three months ended September 30, 2012 and 2011, were $1,381,972 and $666,736, respectively, an increase of 107%. The increase for the three month period ended September 30, 2012 versus the same periods in the prior year were primarily due to a $609,111 increase in contract labor and personnel related expenses.

Comparatively, engineering expenses for the six months ended September 30, 2012 and 2011, were $2,374,334 and $1,186,875, respectively, an increase of 100%. The increase for the six month period ended September 30, 2012 versus the same periods in the prior year were primarily due to a $931,623 increase in contract labor and personnel related expenses. We expect these expenses to continue to increase as we grow our business.

General and Administrative Expense General and administrative expense consists primarily of salaries, benefits and stock-based compensation expense related to general and administrative personnel, professional fees primarily related to legal and accounting fees, facilities expenses and the related overhead, and expenses related to platform fraud prevention and remediation. General and administrative expenses for the three months ended September 30, 2012 and 2011, were $2,725,140 and $1,794,108, respectively, an increase of approximately 52%. The increase was primarily due to increases of $732,402 in contract labor and personnel related expenses.

Comparatively, general and administrative expenses for the six months ended September 30, 2012 and 2011, were $5,236,843 and $3,308,334, respectively, an increase of approximately 58%. The increase was primarily due to increases of $1,275,883 in contract labor and personnel related expenses, $299,271 in audit and tax fees, and $181,551 in licenses, permits and fees. We expect that general and administrative expenses will decrease as a percentage of overall operating expenses as we grow our sales efforts in greater proportion than our general and administrative expenses.

Liquidity and Capital Resources Six Months Ended September 30, Cash Flows: 2012 2011 $ Change Net Loss $ (3,407,395 ) $ (6,453,035 ) $ 3,045,640 Net Non-Cash (Revenues) Expenses and Changes in Operating Assets and Liabilities 4,583,317 1,279,323 3,303,994 Net Cash Provided by (Used in) Operating Activities $ 1,175,922 $ (5,173,712 ) $ 6,349,634 Net Cash Used in Investing Activities $ (252,970,145 ) $ (82,540,421 ) $ (170,429,724 ) Add back origination of Member Loans at fair value 344,423,733 123,537,056 220,886,677 Add back origination of Member Loans at amortized cost - 1,063,821 (1,063,821 ) Subtract repayment of Member Loans at fair value (92,336,318 ) (41,588,088 ) (50,748,230 ) Subtract repayment of Member Loans at amortized cost (430,721 ) (854,697 ) 423,976 Net Cash Used in Investing Activities after removing activities related to Member Loans $ (1,313,451 ) $ (382,329 ) $ (931,122 ) Net Cash Provided by Financing Activities $ 272,958,988 $ 106,584,113 $ 166,374,875 Subtract origination of Notes and Certificates at fair value (352,744,227 ) (124,210,169 ) (228,534,058 ) Add back repayment of Notes and Certificates at fair value 97,341,982 42,024,062 55,317,920 Net Cash Provided By Financing Activities after removing activities related to Notes and Certificates at fair value $ 17,556,743 $ 24,398,006 $ (6,841,263 ) Net cash provided by operating activities was $1,175,922 in the six months ended September 30, 2012, compared to net cash used in operations of $5,173,712 in the six months ended September 30, 2011. Net Non-Cash (Revenues) / Expenses and Changes in Operating Assets and Liabilities of $4,583,317 in the six months ended September 30, 2012 included non-cash expenses of: (i) $41,293 of benefits for loan losses on Member Loans at amortized cost; (ii) $476,024 of stock based compensation expense; (iii) $5,135 of amortization of debt discounts; (iv) $133,074 of depreciation expense; (v) $4,339,844 resulting from increased accrued interest payable and other accrued expenses; and (vi) $2,325,560 resulting from increased payable to member lenders. Similarly, non-cash expenses of $1,279,323 in the six months ended September 30, 2011 included: (i) $155,144 provisions for loan losses on Member Loans at amortized cost; (ii) $268,413 of stock based compensation expense; (iii) $57,117 of amortization of debt discounts; and (iv) $60,574 of depreciation expense.

37-------------------------------------------------------------------------------- Table of Contents Net cash used in investing activities for the six months ended September 30, 2012 and 2011 were $252,970,145 and $82,540,421, respectively. However, after removing activity related to the Member Loans, which activity was mostly offset by corresponding activity related to the Notes and Certificates reflected in our cash flow from financing activities, the remaining amounts of cash provided by / (used for) investing activities for the six months ended September 30, 2012 and 2011, were $(1,313,451) and $(382,329), respectively. The net cash used in investing activities in the six months ended September 30, 2012 after removing the recurring activities related to Member Loans was primarily related to the increase in restricted cash and purchases of property and equipment partially offset by the proceeds from the sale of charged-off Member Loans. In the six months ended September 30, 2011, the uses of cash in investing activities were comprised of an increase in restricted cash and purchases of property and equipment.

Net cash provided by financing activities for the six months ended September 30, 2012 and 2011, were $272,958,988 and $106,584,113, respectively. However, after excluding recurring activity related to the Notes and Certificates, which is mostly offset by corresponding activity related to our Member Loans at fair value (reflected in our cash flows from investing activities), the net amounts of cash provided by financing activities for the six months ended September 30, 2012 and 2011, were $17,556,743 and $24,398,006, respectively. Cash provided by financing activities, after excluding activity related to the Notes and Certificates, consisted primarily of the net proceeds from the issuance of (i) Series E Preferred Stock, (ii) Series A and B preferred stock from warrant exercises and (iii) common stock via exercise of employee stock options partially offset by the repayment of loans payable for the six months ended September 30, 2012. For the six months ended September 30, 2011, cash provided by financing activities, after excluding activity related to the Notes and Certificates, consisted primarily of net proceeds from the issuance of our Series D Preferred Stock which was partially offset by funds used for the repayment of loans payable.

At September 30, 2012 and 2011, we had $5,726,453 and $1,022,000, respectively, in restricted cash. The net increase in restricted cash at September 30, 2012 versus September 30, 2011 was primarily due to the pledges of $3.0 million of our funds as security for WebBank, approximately $0.9 million for an investor as part of a credit support agreement, and approximately $1.7 million as security for Wells Fargo Bank that clears our borrowers' and investors' cash transactions, partially offset by a reduction of approximately $0.7 million formerly pledged to the bank that coordinated the credit facilities we obtained in prior years. We primarily hold our excess cash in short-term interest-bearing money market funds at highly-rated financial institutions.

Additionally, at September 30, 2012, we have a deposit of $1,015,895 placed with a nationally-recognized payment services provider we use for transactions related to our platform. The deposit is required pursuant to the agreement with the payment services provider, serves as collateral for the protection of the payment services provider and our members, and is restricted as to withdrawal.

The deposit is ongoing throughout the term of the contract and the amount of the deposit depends on the volume of payment transactions processed. The deposit with the payment services provider is required to be returned to us when payment transaction volumes decline and upon termination or expiration of the agreement.

As of September 30, 2012, our accumulated deficit was $56.8 million and our total stockholders' deficit was $51.0 million. Our net loss for the three months ended September 30, 2012 and 2011 was $0.9 million and $3.3 million, respectively, and for the six months ended September 30, 2012 and 2011 was $3.4 million and $6.5 million, respectively. For the quarter ended September 30, 2012, we were cash-flow positive. We expect to continue to operate on a cash-flow positive basis through the end of calendar year 2013 and we believe that we will continue operating at or near breakeven between now and the end of our current fiscal year. If our assumptions regarding continued growth and operating plan are incorrect, we may need to slow our investment spending, which could slow our rate of growth or ability to continue operating on a cash-flow positive basis, and our current liquidity resources may be consumed. To date we have funded our cash requirements with proceeds from the sale of our equity securities.

Assets Under Management In October 2010, we formed a subsidiary, LC Advisors, LLC, a California limited liability company ("LCA"), which is wholly-owned by LendingClub. LCA commenced operations after January 1, 2011 and has registered with the SEC as an investment advisor. As of September 30, 2012, LCA acts as the general partner to three private investment funds for accredited investors with differing investment strategies ("Funds"). In connection with the Funds, LendingClub formed a Delaware business trust (LC Trust I or the "Trust") in February 2011 as a bankruptcy remote entity to hold Member Loans purchased from LendingClub.

We started offering the Funds to potential investors in February 2011 through a private placement. As of September 30, 2012, the Funds had approximately $211 million in assets with $25 million in escrow, which was contributed to the Funds on the first 38 -------------------------------------------------------------------------------- Table of Contents business day of October 2012. LCA earns a management fee paid by the limited partners of the Funds, paid monthly in arrears, ranges from 0.60% to 1.25% (annualized) of the month-end balances of partners' capital accounts. These management fees can be modified or waived for individual limited partners at the discretion of the general partner.

Beginning January 2012, LCA also began offering SMAs to individual investors.

Funds in the SMAs are invested in Certificates issued by the Trust. As of September 30, 2012, the SMAs had approximately $14 million in assets. LCA earns management fees paid by certain SMA investors, paid monthly in arrears, based on the month-end balances in the SMA accounts.

Summary of Changes in Assets Under Management The table below presents a summary of changes in total assets under management for LCA, including both assets of the Funds and SMAs, stated at amortized cost except for appreciation / (depreciation) which includes fair value adjustments for investments, for the six month periods ended September 30, 2012 and 2011.

Six Months Ended September 30, (dollars in millions) 2012 2011 Balance - beginning of period $ 104.5 $ 0.8 Net capital contributions 114.3 24.2 Appreciation (depreciation) 6.3 0.2 Balance - end of period $ 225.1 $ 25.2 Income Taxes We incurred no net income tax provision or benefit related to our pre-tax losses for the three or six month periods ended September 30, 2012 and 2011. Accounting Standards Codification Topic 740, "Income Taxes," provides for the recognition of deferred tax assets, such as the future benefit of net operating loss deductions against future taxable income, if realization of such tax-related assets is more likely than not. However, given our history of operating losses, it is difficult to accurately forecast when and in what amounts future results will be affected by the realization, if any, of the tax benefits of future deductions for our net operating loss carry forwards. Based upon the weight of available evidence, which includes our historical operating performance, the reported cumulative net losses in all prior years, and the potential limitations and uncertainties in realizing the tax benefits of the prior net operating losses, we have provided a full valuation allowance against our net deferred tax assets. Such valuation allowance against the deferred tax assets fully offsets the current periods' tax benefits attributable to the pre-tax losses.

Variable Interest Entities The determination of whether to consolidate a variable interest entity (VIE) in which the Company has an equity interest requires a significant amount of analysis and judgment whether the Company is the primary beneficiary of a VIE via a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if the Company has both the power to direct the VIE's activities that most significantly affect the VIE's economic performance and an economic interest in the VIE. The determination whether an entity is a VIE considers factors such as: (i) whether a holder's equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support, or (ii) when a holder's equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity's activities that have a significant effect on the entity's success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. Since adoption of amended accounting guidance applicable to VIE's on January 1, 2010, management has considered whether we have any equity investments in VIE's that meet the conditions requiring consolidation of such entities.

The Trust commenced operations in March 2011 and its' purpose is to acquire and hold Member Loans for the benefit of investors that purchase Trust Certificates (Certificates) issued by the Trust. The Trust conducts no other business other than purchasing and retaining loans or portions thereof for the benefit of the funds and their underlying limited partners. The Trust holds all loans, the cash flows of which are used to pay debt service on the Certificates invested in by the funds but does not hold any portions of loans that are financed by LendingClub directly or through the purchase and sale of Notes.

It is unclear what will happen to the interests represented by Notes in the event of LendingClub's insolvency. As a result of this risk and uncertainty and in connection with the formation of the funds, it was determined that in order to achieve any reasonable success in raising investment capital that the assets to be invested in by the funds must be held by an entity that was separate and distinct from LendingClub Corporation (i.e. bankruptcy remote) in order to reduce this risk and uncertainty.

39-------------------------------------------------------------------------------- Table of Contents The Company's capital contributions have been insufficient to allow the Trust to finance its purchase of any significant amount of Member Loans without the issuance of Certificates to investors. The Trust's low capitalization levels (minimum capital of 0.25% of assets) and structure, wherein investors' have beneficial interests in Member Loans via the Certificates, qualifies the Trust as a VIE. The Company believes it is the primary beneficiary of the Trust because of its controlling financial interest in the Trust. The Company performs or directs activities that significantly affect the Trust's economic performance via, i) operation of the platform that enables borrowers to apply for Members Loans purchased by the Trust, ii) credit underwriting and servicing of Member Loans purchased by the Trust, and, iii) LCA's role to source investors that ultimately purchase Certificates that supply the funds for the Trust to purchase Member Loans. Collectively, the activities of the Company, LCA and Trust described above allow the Company to fund more Member Loans, and to collect the related loan origination fees, and for LCA to collect the management fees on the investors' capital used to purchase Trust Certificates, than would be the case without the existence of the Trust. Therefore, the Company receives significant economic benefits from the existence and activities conducted by the Trust.

Accordingly, because the Company has concluded that its' capital contributions to the Trust qualify as equity investments in a VIE in which it is primary beneficiary, the Company has consolidated the Trust's operations and all intercompany accounts have been eliminated.

The Company reviewed its relationship to the funds in which LCA is the general partner but for which neither LC nor LCA contributed capital. The Company concluded that LCA's contractual relationship to the funds does not meet the requirements for consolidation of the funds into the Company's consolidated financial statements. As of September 30, 2012, the Company didn't have any controlling or other interests in any VIEs, other than its interest in the Trust discussed above, to be included in the Company's consolidated financial statements. Upon the occurrence of future events, such as redemptions by all unaffiliated investors in any funds and modifications to fund organization documents and investment management agreements, management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE and whether the Company is required to consolidate such VIE in its consolidated financial statements.

Additional Information about the LendingClub Platform Historical Information about Our Borrower Members Loans: In regards to the following historical information, prior performance is no guarantee of future results or outcomes.

For purposes of the following information and tables, we have excluded from the data all previously issued loans that would not meet the current credit policy.

From May 24, 2007 to September 30, 2012, we had facilitated member loans with an average original principal amount of approximately $11,957 and an aggregate original principal amount of $890,122,700. Out of 74,440 facilitated Member Loans, 11,662 Member Loans with an aggregate original principal amount of $118,114,250, or 13.30% had fully paid. Including loans which were fully paid, 68,354 loans representing $813,114,950 of the outstanding principal balance at September 30, 2012 had been through at least one billing cycle.

Of the $813,114,950 of original principal balance at September 30, 2012 that had been through at least one billing cycle, $18,964,689 of outstanding principal balance less interest and fees received, or 2.33%, was either in default or has been charged off. The defaulted or charged off loans were comprised of 2,598 Member Loans, of which 1,880 loans representing $13,128,682 in outstanding principal balance less interest and fees received, were defaults and charge offs due to delinquency, while the remaining 718 loans were loans in which the borrower members filed for a Chapter 7 bankruptcy seeking liquidation. A Member Loan is considered defaulted when at least one payment is more than 120 days late.

Of remaining loans that had been through at least one billing cycle as of September 30, 2012, $535,411,643 of principal remained outstanding of which 97.95% was current, 0.31% was 16 to 30 days late, 1.45% was between 31 and 120 days late and 0.29% was on a performing payment plan. During the three months ended September 30, 2012, of the 42,085 Member Loans which were not delinquent prior to the start of the quarter, 1,293 Member Loans became delinquent for some amount of time during the quarter, excluding those that entered the 0 - 15 day grace period.

40 -------------------------------------------------------------------------------- Table of Contents The following table presents aggregated information about borrower members and their loans for the period from May 24, 2007 to September 30, 2012, grouped by the loan grade assigned by us: Number of Average Average Annual Average Total Funded Loan Grade Borrowers Interest Rate Percentage Rate Commitment A1 2,374 5.92% 6.84% $ 8,037 A2 2,774 6.49% 7.82% 8,276 A3 3,089 7.35% 8.89% 8,888 A4 5,192 7.77% 9.61% 10,256 A5 4,493 8.51% 10.26% 10,209 B1 3,506 9.97% 12.65% 10,508 B2 4,039 10.69% 13.35% 10,741 B3 6,455 11.59% 14.27% 11,562 B4 4,908 12.20% 14.85% 11,651 B5 5,031 12.69% 15.35% 11,635 C1 4,490 13.50% 16.66% 11,697 C2 4,152 14.15% 17.32% 12,069 C3 2,520 14.37% 17.46% 11,239 C4 2,248 14.92% 18.06% 10,983 C5 2,101 15.46% 18.58% 11,332 D1 1,934 16.18% 19.68% 11,134 D2 2,458 16.58% 19.70% 12,612 D3 2,108 16.91% 19.90% 14,163 D4 1,795 17.28% 20.23% 14,994 D5 1,558 17.82% 20.65% 15,848 E1 1,277 18.22% 21.02% 16,772 E2 1,109 18.69% 21.40% 17,497 E3 925 19.09% 21.78% 17,907 E4 826 19.69% 22.33% 18,977 E5 717 20.07% 22.70% 19,988 F1 592 20.67% 23.29% 20,866 F2 457 20.92% 23.53% 20,207 F3 332 21.39% 24.00% 20,965 F4 268 21.49% 24.12% 20,715 F5 218 21.97% 24.61% 23,191 G1 184 22.33% 24.95% 22,617 G2 125 22.30% 24.95% 22,487 G3 67 22.41% 25.00% 21,683 G4 74 22.63% 25.30% 21,631 G5 44 22.76% 25.48% 20,722 Total Portfolio 74,440 12.64% 15.20% $11,958 41 -------------------------------------------------------------------------------- Table of Contents The following table presents aggregated information for the period from May 24, 2007 to September 30, 2012, self-reported by borrower members at the time of their loan applications, grouped by the loan grade assigned by us. We do not independently verify this information: Percentage of Borrowers Stating They Own Their Average Annual Average Debt to Loan Grade Own Homes Gross Income Income Ratio (1) A1 69.63% $ 67,786 11.60% A2 62.51% 65,903 12.38% A3 60.25% 67,694 12.90% A4 54.70% 66,708 13.39% A5 54.00% 69,045 13.73% B1 52.71% 66,636 14.04% B2 51.67% 65,941 14.43% B3 50.18% 66,505 15.12% B4 50.47% 67,189 15.02% B5 49.77% 66,119 15.01% C1 48.86% 67,774 15.22% C2 48.24% 67,838 15.22% C3 48.37% 66,928 14.77% C4 48.49% 64,401 15.43% C5 47.79% 67,230 15.15% D1 43.17% 64,138 15.26% D2 48.70% 69,551 15.17% D3 50.09% 70,750 15.25% D4 48.75% 71,737 15.28% D5 51.48% 73,942 15.31% E1 51.84% 76,192 15.10% E2 53.38% 78,367 15.47% E3 52.32% 78,631 15.20% E4 56.42% 81,228 15.68% E5 59.55% 91,905 15.39% F1 57.43% 86,591 15.33% F2 57.33% 85,782 15.69% F3 53.61% 89,923 15.87% F4 55.97% 85,727 15.85% F5 61.47% 96,870 15.76% G1 61.96% 92,025 14.60% G2 60.00% 90,649 16.60% G3 56.72% 91,829 15.92% G4 62.16% 114,685 15.00% G5 63.64% 105,614 15.73% Total Portfolio 52.31% $ 68,938 14.56% 1 Average debt to income ratio, excluding mortgage debt, calculated by us based on (i) the debt reported by a consumer reporting agency, and (ii) the income reported by the borrower member.

42 -------------------------------------------------------------------------------- Table of Contents The following table presents aggregated information for the period from May 24, 2007 to September 30, 2012, reported by a consumer reporting agency about our borrower members at the time of their loan applications, grouped by the loan grade assigned by us. As used in this table, "Delinquencies in the Last Two Years" means the number of 30+ days past-due incidences of delinquency in the borrower member's credit file for the past two years. We do not independently verify this information. All figures other than loan grade are agency reported: Average Average Average Average Average Average Average Inquiries Delinquencies Months Since Open Credit Total Credit Revolving Revolving Line in the Last Six in the Last Two Last Loan Grade Average FICO Lines Lines Credit Balance Utilization Months Years Delinquency A1 778 10 25 $10,098 20.64% 0 0 42 A2 763 10 24 10,055 25.48% 1 0 40 A3 754 10 23 11,170 30.00% 1 0 39 A4 743 9 23 12,668 37.75% 1 0 40 A5 735 10 23 13,413 41.23% 1 0 40 B1 728 9 22 13,002 45.96% 1 0 39 B2 723 10 22 13,007 47.67% 1 0 39 B3 713 10 22 13,882 53.43% 1 0 38 B4 710 10 22 14,122 53.23% 1 0 38 B5 705 10 22 14,071 56.17% 1 0 37 C1 700 10 22 13,964 58.98% 1 0 36 C2 696 10 22 14,105 60.77% 1 0 37 C3 696 10 22 13,764 57.71% 1 0 37 C4 690 10 22 13,465 61.12% 1 0 35 C5 688 10 22 13,750 61.74% 1 0 35 D1 678 10 21 13,151 67.36% 1 0 34 D2 685 10 22 14,228 65.19% 1 0 35 D3 687 10 22 15,307 65.52% 1 0 35 D4 686 10 22 15,211 66.77% 1 0 37 D5 686 10 23 16,460 67.31% 1 0 35 E1 686 10 23 16,176 67.44% 1 0 36 E2 685 10 24 16,733 68.32% 1 0 35 E3 683 10 24 17,640 69.99% 1 0 33 E4 681 11 24 18,670 70.05% 1 0 35 E5 679 11 25 19,353 71.08% 1 0 35 F1 678 11 25 18,990 69.97% 1 0 34 F2 676 11 25 19,641 73.03% 1 0 34 F3 675 11 26 20,783 72.58% 1 0 32 F4 672 11 26 17,543 72.36% 1 0 31 F5 671 11 25 20,744 73.59% 1 0 33 G1 669 12 26 18,616 72.58% 1 1 31 G2 670 12 26 23,947 78.27% 1 0 33 G3 668 11 25 19,361 84.11% 1 0 31 G4 671 13 29 26,028 78.01% 1 0 35 G5 669 16 32 25,688 76.50% 1 0 34 Total Portfolio 712 10 22 $13,876 52.74% 1 0 37 The following table presents additional aggregated information for the period from May 24, 2007 to September 30, 2012, about delinquencies, default and borrower paid off loans, grouped by the loan grade assigned by us. The default and delinquency information presented in the table includes data only for Member Loans that had been through at least one billing cycle as of September 30, 2012.

With respect to late Member Loans, the following table shows the entire amount of the principal remaining due, not just that particular payment. The third and fifth columns show the late Member Loan amounts as a percentage of member loans that have been through at least one billing cycle. Member Loans are placed on nonaccrual status and considered as defaulted when they become 120 days late.

The data presented in the table below comes from a set of Member Loans that have been outstanding, on average, for approximately twelve months.

Because of our limited operating history, the data in the following table regarding loss experience may not be representative of the loss experience that will develop over time as additional Member Loans are originated through our platform and the Member Loans already originated through our platform have longer payment histories.

43 -------------------------------------------------------------------------------- Table of Contents Charged-Off / Default of Through At Number of Number Number Total Charged-Off Least One Loans excl of Loans of All Origination / Default of Loan 16-30 Days 16-30 Days 31+ Days 31+ Days Charged-Off / Billing Issued / Fully Fully Issued Amount for All All Grade Late ($) Late (%) Late ($) Late (%) Default ($) Cycle (%) Fully Paid Paid Fully Paid ($) Paid (%) Loans Issued Loans Issued (%) A1 $ 0 0.00 % $ 57,838 0.47 % $ 74,847 0.43 % 1,919 277 $ 1,742,025 9.13 % 2,374 $ 19,078,800 0.39 % A2 58,104 0.41 % 60,230 0.43 % 124,723 0.59 % 2,120 483 2,751,075 11.98 % 2,774 22,958,500 0.54 % A3 20,762 0.13 % 118,591 0.76 % 173,839 0.68 % 2,254 664 4,492,600 16.36 % 3,089 27,456,525 0.63 % A4 30,282 0.10 % 182,919 0.58 % 298,998 0.61 % 3,913 922 7,684,350 14.43 % 5,192 53,249,525 0.56 % A5 44,415 0.18 % 123,875 0.50 % 550,165 1.28 % 3,291 946 8,750,225 19.08 % 4,493 45,868,675 1.20 % B1 42,401 0.20 % 173,443 0.80 % 490,924 1.45 % 2,641 596 5,610,450 15.23 % 3,506 36,841,700 1.33 % B2 8,804 0.03 % 180,966 0.71 % 679,668 1.71 % 3,020 655 7,102,325 16.37 % 4,039 43,382,775 1.57 % B3 46,520 0.10 % 467,034 1.01 % 1,126,739 1.68 % 4,965 810 9,493,725 12.72 % 6,455 74,634,075 1.51 % B4 104,113 0.30 % 309,491 0.89 % 1,020,686 1.97 % 3,696 734 7,775,350 13.60 % 4,908 57,184,375 1.78 % B5 59,594 0.17 % 338,716 0.95 % 1,085,954 2.04 % 3,811 766 8,040,600 13.74 % 5,031 58,534,225 1.86 % C1 49,919 0.15 % 525,509 1.55 % 1,096,885 2.31 % 3,449 616 6,143,425 11.70 % 4,490 52,520,200 2.09 % C2 54,686 0.17 % 337,003 1.03 % 1,090,376 2.40 % 3,207 558 5,844,325 11.66 % 4,152 50,111,050 2.18 % C3 68,849 0.42 % 311,826 1.92 % 976,633 3.75 % 1,813 507 5,194,500 18.34 % 2,520 28,321,800 3.45 % C4 50,545 0.36 % 270,272 1.93 % 650,688 2.92 % 1,588 459 4,647,525 18.82 % 2,248 24,690,900 2.64 % C5 59,934 0.41 % 244,551 1.69 % 747,956 3.44 % 1,566 363 3,489,275 14.66 % 2,101 23,809,450 3.14 % D1 49,791 0.40 % 136,893 1.10 % 642,801 3.35 % 1,426 308 3,223,850 14.97 % 1,934 21,533,750 2.99 % D2 38,962 0.20 % 432,966 2.22 % 744,080 2.66 % 1,874 361 3,928,925 12.67 % 2,458 31,000,450 2.40 % D3 150,278 0.77 % 399,890 2.04 % 921,417 3.37 % 1,643 315 3,713,675 12.44 % 2,108 29,854,925 3.09 % D4 48,119 0.27 % 401,056 2.23 % 801,781 3.27 % 1,415 242 2,876,525 10.69 % 1,795 26,914,925 2.98 % D5 72,721 0.45 % 322,287 2.00 % 715,448 3.22 % 1,196 234 3,089,450 12.51 % 1,558 24,690,975 2.90 % E1 111,420 0.78 % 424,838 2.96 % 722,687 3.69 % 1,008 177 2,525,550 11.79 % 1,277 21,418,100 3.37 % E2 71,829 0.52 % 216,824 1.58 % 623,191 3.50 % 895 143 1,880,275 9.69 % 1,109 19,404,575 3.21 % E3 80,792 0.70 % 155,753 1.36 % 531,707 3.52 % 740 122 1,837,225 11.09 % 925 16,563,600 3.21 % E4 62,616 0.54 % 195,757 1.70 % 533,006 3.64 % 685 95 1,459,975 9.31 % 826 15,675,275 3.40 % E5 100,818 0.93 % 338,810 3.13 % 488,037 3.59 % 611 72 1,106,275 7.72 % 717 14,331,500 3.41 % F1 25,596 0.29 % 266,721 2.98 % 459,085 4.15 % 474 64 998,475 8.08 % 592 12,352,450 3.72 % F2 60,160 0.90 % 128,096 1.92 % 388,328 4.69 % 372 45 665,250 7.20 % 457 9,234,425 4.21 % F3 27,927 0.55 % 48,261 0.95 % 184,244 2.90 % 274 33 555,825 7.99 % 332 6,960,475 2.65 % F4 - 0.00 % 108,708 2.59 % 266,335 5.14 % 228 26 388,450 7.00 % 268 5,551,500 4.80 % F5 - 0.00 % 119,433 3.16 % 235,349 5.09 % 183 20 372,600 7.37 % 218 5,055,550 4.66 % G1 - 0.00 % 27,340 0.96 % 135,800 3.68 % 144 22 459,800 11.05 % 184 4,161,575 3.26 % G2 31,134 1.38 % 95,061 4.23 % 174,237 6.42 % 114 7 111,200 3.96 % 125 2,810,850 6.20 % G3 - 0.00 % 97,634 9.11 % 101,998 7.27 % 58 7 174,050 11.98 % 67 1,452,775 7.02 % G4 22,306 2.12 % 69,933 6.64 % 29,032 1.95 % 63 7 169,300 10.58 % 74 1,600,700 1.81 % G5 $ 0 0.00 % $ 60,902 9.85 % $ 77,045 9.02 % 36 6 $ 115,800 12.70 % 44 $ 911,750 8.45 % Total $ 1,653,395 0.30 % $ 7,749,429 1.39 % $ 18,964,689 2.33 % 56,692 11,662 $ 118,414,250 13.30 % 74,440 $ 890,122,700 2.13 % 44 -------------------------------------------------------------------------------- Table of Contents The following table presents aggregated information for the period from May 24, 2007, to September 30, 2012, on the results of our collection efforts for all corresponding Member Loans that became more than 30 days past due at any time, grouped by credit grade. For purposes of this analysis, we have excluded 39 loans that we classified as identity fraud. In these cases, we wrote-off the uncollectible loan and repaid holders of any related Notes an amount equal to the unpaid principal balances due on the Notes less any applicable servicing fees.

Aggregate Gross Principal Amount Gross Amount Balance of Recovered Total Aggregate Collected on Number of Loans Loans Charged- on Loans Loan Number of Loans Origination Amount Sent Accounts Sent Charged-Off Due Off Due to Charged-Off Grade In Collection (1) Amount (1) to Collections (1) to Collections (2) to Delinquency (3) Delinquency (3) (4) A 773 $ 5,272,700 $ 530,511 $ 201,104 177 $ 780,250 $ 34,521 B 1,290 12,437,825 1,626,328 689,546 414 2,673,476 53,289 C 1,410 13,217,475 1,769,044 705,435 502 2,998,392 79,351 D 1,016 10,885,525 1,624,535 725,411 399 2,872,882 73,643 E 514 6,901,175 968,995 419,647 215 1,983,064 25,540 F 208 3,514,875 554,472 219,518 104 1,232,780 19,835 G 80 1,353,750 202,610 83,122 42 438,165 6,077 Total 5,291 $ 53,583,325 $ 7,276,495 $ 3,043,783 1,853 $ 12,979,009 $ 292,256 1) Represents accounts 31 to 120 days past due.

2) Represents the gross amounts collected on corresponding member loans while such accounts were in collection during the 31-120 days past-due period. This amount does not represent payments received after an account has been sent to collection, cured and returned to current status.

3) Represents accounts that have been delinquent for 120 days at which time the account is charged-off. Any money recovered after 120 days is no longer included as amounts collected on accounts sent to collection. As of this quarter, a total of 1,853 loans have been charged off due to delinquency, of which six were on a payment plan as of September 30, 2012.

4) Represents the gross amounts we received on charged-off accounts after the accounts were charged-off-i.e., a payment received on an account after 120 days past due.

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