To ensure balance in our marketplace, we make periodic adjustments based on investor feedback, marketplace demand, loan performance, and the general interest rate environment.
In line with that goal, we continue to optimize our portfolio mix through targeted cuts to certain loan grades and terms within the standard loan program.
Please see below for this quarter’s commentary.
The U.S. economy continues to show strength, with resilient consumers offsetting weakness in industrial sectors of the economy. October’s jobs report showed unemployment at a 50-year low in addition to upward revisions to jobs data from the two prior months.1
Household debt service burdens are still low overall.2 Looking across consumer credit, asset performance continues to be in line with expectations.
At its October meeting, the Federal Reserve cut rates for the third time this year, meeting consensus expectations for a 25-basis point cut.3 At the same time, it signaled October’s cut could mark the end of a series that has come amid pressure from financial markets and the Trump administration, and against a backdrop of still strong economic growth.
We continue to employ a “test and learn” approach, optimizing investment offerings to proactively balance investor demand and borrower behavior. One example of this is the launch of our balance transfer loan product, which early indications suggest is having a positive impact on loss rates.
In tandem with the adjustments we have been making across all loan grades, we continue to monitor the interest rate environment to inform potential future changes.
Overall, we expect weighted average returns at a portfolio level to be 5.1% versus 5.3% for the last quarter for new vintages, reflecting updates to our forecasts.
Over the last several quarters we have focused on tightening certain higher risk segments, specifically borrowers seeking loans for purposes other than debt consolidation. This quarter, we are enhancing our tools and capabilities in collections. We anticipate all of these efforts, in addition to increasing our balance transfer population, should leave us better positioned to meet potential future changes in the economic environment.
Please see the updated return forecast below.
Platform Summary and Projections as of November 5, 20194, 5, 6
We will keep you informed as and when we make changes.
1. Source: Bureau of Labor Statistics: https://www.bls.gov/news.release/empsit.nr0.htm.
2. Source: Moody’s Analytics.
3. Source: Wall Street Journal: https://www.wsj.com/graphics/econsurvey/.
4. “Average Interest Rate” is the hypothetical weighted average interest rates we obtained by using the subgrade and maturity mix for issued Prime Program loans in September 2019 and calculating the interest rate that would have applied had such loans been issued following the rate and/or credit policy changes going into effect on November 5, 2019.
5. “Projected 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 Prime Program loans issued following the rate and/or credit policy changes going into effect on November 5, 2019. Projected Charge-Off Rate 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.
6. “Projected Return” is a measure of the estimated annualized return rate on invested principal using an internal rate of return (IRR) methodology. The IRR is computed using monthly cash flow projections. 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 Projected Charge-Off Rate, minus Projected Fees (as disclosed below). Monthly IRR figures are annualized by multiplying the monthly IRR figure by 12, then converted to percentages. Projected Returns are calculated based on grade and maturity mix described in the “Average Interest Rate” disclaimer above. 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 be materially worse.
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