A core strength of LendingClub’s marketplace model is the ability to incorporate data insights quickly in order to responsibly adapt for the benefit of borrowers and investors. We share insights into platform performance regularly to give investors a sense of what we are observing on the platform and what they can expect.
In the second quarter of 2017, we continued to observe the same trends we saw in the first quarter: delinquency rates across most grades and terms in the existing loan portfolio continue to be lower than the peaks experienced by loans issued in the second and third quarters of 2016. Our updated loss forecast is substantially the same as last quarter. Projected investor returns are also largely unchanged from the first quarter and continue to range from approximately 4% to 9% (see below).
Our approach to risk management is a continuous, proactive process. We test and monitor borrower results and, when necessary, adjust using a disciplined, deliberate, and data-driven approach. This quarter, minor modifications to credit were made in grades F and G only, as charge-offs for the platform overall continue to come in line with our expectations.
A range of factors influence returns on the LendingClub platform, including the overall U.S. economy, borrower performance, and prevailing interest rates. A few factors that influence returns on the platform1 are listed below:
We continuously refine our methodology and update loss forecasts quarterly to give investors a sense of what they can expect. This quarter, loss forecasts are substantially unchanged relative to last quarter. Likewise, projected investor returns are substantially similar to last quarter with small increases in projected returns in grades F and G. Please see the summary table below.
Platform Summary and Projections as of August 7, 2017
Our continuous enhancement cycle and quarterly loss forecast process help us anticipate and adapt faster on behalf of borrowers and investors alike. The difference between LendingClub and other financial institutions is the degree of transparency we provide to investors so they can make quick and informed decisions on their portfolios.
As always, we will continue to keep our investors apprised of changes on the platform. Please feel free to reach out to firstname.lastname@example.org with any questions. We look forward to continuing to have you as an investor for years to come.
1Investor returns are also impacted by other factors, such as prepayment rates, the size and diversity of a portfolio, the exposure to any single Note or loan, borrower or group of Notes, loans, or borrowers, as well as other externalities and macroeconomic conditions.
2“Average Interest Rate” is based on weighted average interest rates using the grade and maturity mix for issued loans for the six weeks ending July 16, 2017.
3“Projected Annualized Net Credit Loss (w/ Prepayment)” also known as Expected Charge-Off Rate, is LendingClub’s projection of the aggregate dollar amount of loan principal charged-off, net of any amounts recovered and accounting for the impact of amounts prepaid, as an annualized percentage of the aggregate dollar amount of loan principal for all loans issued under the Prime Program after August 7, 2017. Projected Annualized Net Credit Loss (w/ Prepayment) is not a promise of future results and may not accurately reflect actual charge-off or prepayment rates. Actual charge-off and prepayment rates experienced by any individual portfolio may be impacted by, among other things, the size and diversity of the portfolio, the exposure to any single loan, borrower or group of loans or borrowers, as well as macroeconomic conditions.
4“Projected Return” is a measure of the estimated annualized return rate on invested principal (meaning for all funds then invested in Notes or loans) using an internal rate of return (IRR) methodology using a monthly term. Monthly cash flow projections are calculated as follows: the scheduled principal and interest payments based on the Interest Rate, minus the amount of such principal and interest payments lost due to the Expected Charge-Off Rate, minus Expected Fees. Monthly IRR figures are annualized by multiplying the monthly IRR figure by 12. Projected Returns are calculated based on grade and maturity mix for issued loans for the six weeks ending July 16, 2017. Projected Return is not a promise of future results and may not accurately reflect actual returns. Actual returns experienced by any individual portfolio may be impacted by, among other things, the size and diversity of the portfolio, the exposure to any single Note or loan, borrower or group of Notes, loans or borrowers, as well as macroeconomic conditions. Individual results may vary and projections are subject to change. The information presented is not intended to be investment advice, guidance, or a guarantee of the performance of any Note or loan. Notes are offered by prospectus filed with the SEC and investors should review the risks and uncertainties described in the prospectus prior to investing. Actual results may vary.
“Interest Rate” is equal to the weighted average stated borrower interest rate for the loan grade or mix of loan grades (whichever is applicable) using the grade and maturity mix for issued loans for the six weeks ending July 16, 2017.
“Expected Charge-Off Rate” is defined above as “Projected Annualized Net Credit Loss (w/Prepayment).”
“Expected Fees” for loan purchasers means the aggregate estimated impact of LendingClub’s servicing fee (1%), collection fee (18%), recovery fee (18%), and an administrative fee (0.10%).
“Expected Fees” for Note investors means the estimated impact of all applicable fees as well as the impact of interest not earned during the administrative holding period in the first month (2 business days). Applicable fees are LendingClub’s service fee and collections fee (if applicable). LendingClub charges an investor service fee of 1% of the amount of payments received within 15 days of the payment due date. The service fee is not an annual fee and may therefore reduce annual investor returns by more or less than 1%. We estimate the collection fee based on expected charge-off rates and the expected number of late payments that will be collected on past due loans with a given grade and term. For more detail on LendingClub fees for Note investors, please click here. Individual results may vary and projections can change. Past performance is no guarantee of future results.
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