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A Recap: Credit Strength on the Lending Club Platform

We are proud of our track record of delivering attractive, risk-adjusted returns to investors, and have delivered 8 consecutive years of positive returns.  We are highly focused on maintaining that track record, and committed to transparency.  To that end, we are providing a recap of recent credit performance on the Lending Club platform, re-emphasizing recent changes made to strengthen investor returns.

As reported in late April, on our Q1 earnings call in May, and again in early June, we have seen stable credit performance in the lower risk loan grades (A-C), which represent 75% of standard program loan volume.  In higher risk loan grades (D-G), representing 25% of standard program loan volume, we have seen an increase in credit losses in certain pockets.  We have taken steps to address these segments, through interest rate increases and credit tightening.

As a recap:

  1. Interest Rates are Higher. In the aggregate, interest rates on the Lending Club platform have increased by approximately 135 basis points since November 2015. Rate increases have been concentrated in grades D through G in order to improve risk-adjusted returns in the pockets experiencing higher losses.
  2. Credit Policy is Tighter. The credit policy was tightened in April to eliminate underperforming segments, primarily characterized by borrowers with high indebtedness, an increased propensity to accumulate debt, and lower credit scores. In June, the debt to income (DTI) requirement (excluding mortgage and the requested program loan amount) across the standard loan program was reduced to 35% (from 40%).  In total, the platform no longer approves loans for approximately 9% of borrowers who previously would have been able to obtain a loan under prior underwriting criteria.

As of June 2016, we project net investor returns across all loan grades generally will range from 4.5% to 12.8%.[1] These returns compare favorably with many other fixed income assets; for example, the Barclays U.S. Aggregate Bond Index returned 1.96% for the 1-year period ending March 31, 2016.[2]

In a low-yield environment, we believe Lending Club offers access to a unique asset that provides monthly income and compelling net returns to investors.


[1] Projected return is a measure of potential returns on invested principal. It is calculated as follows: Average Effective Interest Rate – Expected Charge Off Rate – Estimated Fees. Individual results may vary and projections can change. Past performance is no guarantee of future results and the information presented is not intended to be investment advice, guidance, or a guarantee of performance. Projected returns are provided as an informational tool only and are not a promise of future returns. Projected returns have been calculated by Lending Club as of June 2016, and are based on Lending Club’s assumptions regarding future interest rates, prepayment rates, delinquency rates and charge-off rates, among other things. Actual returns may differ materially from projected returns if Lending Club’s assumptions regarding such rates are different from actual future rates or if there are changes in other market conditions.
[2] Index returns are for illustrative purposes only. Index performance does not reflect the deduction of any fees or other expenses. One cannot invest directly in an index.

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