This article, originally published at 5:25 p.m. on Monday, Aug. 8, 2016, has been updated with personnel changes, analysts and executive commentary. 

While Lending Club(LC) - Get Report spent 55% more than planned on investor incentives after irregularities surrounding the sale of some loans, the marketplace lender expects to be able to discontinue them before the end of the year.

The company paid $14 million in inducements, compared with an original projection of $9 million, to retain or lure back the investors who provide capital for loans under its "marketplace" business model. The San Francisco-based lender relies on algorithms to rapidly evaluate credit requests, and the loans it approves are funded by sources including individuals, hedge funds and banks.

Following the departure of co-founder Renaud Laplanche as CEO in May and the company's disclosure that a small portion of loans sold to one investor didn't meet the buyer's criteria, "many investors initially paused or reduced their investment activity," CFO Carrie Dolan said on a Monday earnings call. At the same time, LendingClub's stock plunged as federal and state regulators began probes.


Incentives helped maintain the capital flow needed to clear loans that were already in the company's pipeline, and CEO Scott Sanborn said they "were useful for us in kick-starting the platform activity" afterward.

Individuals were the most resilient after the disruption, Sanborn said, remaining "largely active throughout the quarter," while asset managers and insurance companies came back to the platform more slowly and banks -- which had been reliable purchasers of the highest-quality loans -- proved the most reluctant of all.

"Banks have broader and more complex diligence and regulatory requirements and need to re-review our controls, reporting and compliance processes in greater detail," Sanborn said. "While they are taking more time than other investors, we are pleased with the progress and we have multiple banks already purchasing and expect more to return" through the end of the year, he added.

The company's incentives helped LendingClub grow new loans in the second quarter by 2% from a year earlier, to $1.96 billion, Dolan said on the call. Roughly 51% of those loans were made prior to the company's disclosure, which occurred just days before Mother's Day. Incentives accounted for 145 basis points of the remainder, she said. 

In the three months through September, incentives will drop to 75 to 125 basis points of total volume, she projected.

Since Laplanche's departure, LendingClub has also increased interest rates and set higher credit standards to entice investors. The company cut about 12% of its workforce in June, as two of its major investors, Goldman Sachs(GS) - Get Report and Jefferies stopped backing the company and the New York Department of Financial Services subpoenaed information about LendingClub loans.

By June, however, the lender noted that many of its platform investors were returning, and executives said this month that Jefferies securitized $134 million in higher-risk loans.

While the second-quarter earnings report and the detail provided by executives is a boost, "LendingClub shareholders are left to consider what the long-term impact to operating margin may be as the company contemplates investor acquisition costs which to date have been minimal," Stephen Ju, a Credit Suisse analyst, wrote in a note.

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Credit Suisse has a "neutral" rating on LendingClub with a price target of $7, which it cut from a previous projection of $9.

The San Francisco-based company's adjusted loss of 9 cents a share in the three months through June compared with the average loss of 3 cents estimated by analysts in a Bloomberg survey. LendingClub posted a net loss of $81.4 million, compared with a $4.1 million loss a year earlier.

The lender's shares have fallen 57% this year to $4.79, compared with a gain of 6.7% by the S&P 500.

LendingClub's shares are still "overvalued," Morningstar analyst Colin Plunkett said, but the company "is beginning to make necessary, albeit painful, investments in its business." Plunkett said the company likely won't become profitable until 2019.

The lender's shares popped as much as 4% on Friday, after Bloomberg reported that Western Asset Management, a division of Legg Mason (LM) - Get Reportthat specializes in fixed-income products, would set up a fund to buy as much as $1.5 billion of LendingClub loans.

"We expect our origination volume to be roughly flat for the next two quarters as we work to bring back banks and restructure longer-term investor acquisition costs," Dolan, who resigned Monday, said on the call.

Her departure widens the turnover at the top of the company during a period of upheaval. Controller Bradley Coleman will serve as interim CFO until a full-time successor is hired, LendingClub said. 

Sanborn, working to restore confidence among investors and shareholders, had previously named former McKinsey executive Sameer Gulati as chief operations and strategy officer and former BlackRock senior executive Patrick Dunne as chief capital officer.

On Monday, the company said Fannie Mae CEO Timothy Mayopoulos, whose 30-year financial services career includes stints at Deutsche Bank and Bank of America, would join its board as an independent director.